Friday, February 01, 2013

Conventional wisdom on the deficit is starting to turn

by David Atkins

Manias are a funny thing. Whether it's buying tulips or invading Iraq, all the Very Serious People agree on a policy and ramp up their collective hysteria. Then the obvious stupidity of mania starts to present itself. Some detractors voice their skepticism in the wilderness, the policy starts to fall apart, mainstream cracks start to form, and then the mania comes crashing down.

Deficit hysteria is no different. We had our ramp up, our Very Serious People, and our detractors in the wilderness. The obvious failure of Austerity in Europe showed the policy falling apart. We're now in the crackup stage. The public Krugman/Scarborough fight was one mainstream crack. This L.A. Times article is another:

Listening to the political shouting match and seeing Washington lurch from one fiscal crisis to another, one might think the federal budget deficit is the economic equivalent of a giant meteor hurtling toward America, about to hit any day.

The reality is quite different. In fact, the debt is probably not even the country's biggest economic challenge, most experts say, and certainly not the most urgent.

The evidence shows that the country is on a course of spending and debt accumulation that could lead to serious trouble not today or tomorrow but probably 10 to 20 years down the road.

What the evidence does not show is that such a crisis is close at hand or that the U.S. is in any imminent danger of turning into an economic basket case like present-day Greece.

Moreover, financial experts agree that although America's burgeoning healthcare costs pose huge long-term challenges for the budget, the nation's debt could most likely be controlled for at least the next decade by making a series of relatively moderate policy changes. Those changes, although perhaps unwelcome, would not require drastic adjustments in the lives of most Americans.

For the first time, I get the sense that progressives are going to win the deficit battle and there will be no Grand Bargain. I could be wrong, of course. But there's light at the end of the tunnel.

Unfortunately, there won't be accountability for all the Very Serious People who were seriously, seriously wrong. There never is.